Interest in the blockchain technology is heating up, which is now starting to get to digital currencies as well as an increasing number of central banks are likely to issue their own digital currencies in the next few years, reveals the research by the Bank of International Statements (BIS).
80% of the 66 central banks surveyed by the international financial institution which serves as a bank for central banks said they were looking at the technology, up from seven percent from last year.
20% of them are likely to issue a digital currency within the next six years, up from 10% a year back. One in ten said they were likely to do so in the next three years.
BIS also found that only 10% and that too from emerging market economies have developed pilot projects surrounding CBDC. This could be because emerging economies’ concerns over the efficiency and safety of payment using traditional cash.
“There is no evidence of a widespread or general move to expand this research into experimentation and pilot arrangements,” the bank said.
Private Sector Enters the Currency space
As the private sector, social media giant Facebook entered the market with its digital currency project Libra, major countries have stepped up their game and have started looking at CBDCs.
Central bank digital currencies (CBDCs) are traditional money in digital form that will be issued and governed by a country’s central bank. Unlike Bitcoin, CBDCs will be controlled by centralized authorities.
In June last year, Facebook first unveiled its ambitious project Libra. With its 2.5 billion users, Facebook can reach the masses that have the nation’s feeling threatened about their control over monetary policy. As a result, it faced a backlash from governments around the world.
Facebook’s Libra Pushes Central Banks to Take Action
Libra acted as a catalyst for the world’s major central banks’ move to team up and assess the potential of developing their own digital currencies.
A group of banks including the European Central Bank, Bank of England, the Swiss National Bank, the Bank of Japan, the Bank of Canada, BOE, and the Riksbank along with the BIS have come together to “share experiences as they assess the potential cases for central bank digital currency in their home jurisdictions,”
The group will be co-chaired by BOE deputy governor Jon Cunliffe and former ECB official and BIS’s current head of innovation Benoit Coeure
“The group will assess CBDC use cases; economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies,” the BOE said in a statement.
The People’s Bank of China, which is ready to become the first central bank to launch its own digital currency and the Federal Reserve who sees “no need” for the US to create one in the near future have been the key absences from the group.
Cross Border Payments, Not CBDCs the Top Urgent Priority
While speaking at the World Economic Forum in Davos, Switzerland, Coeure also talked about the use cases of digital assets and stablecoins.
CBDCs according to him will materialize but may take a while. The focus, however, currently needs to be on cross-border payments because they are too costly and slow.
“…its about having a technology that cuts across borders. Everyone agrees [cross-border payments] now are too slow and too costly. The top priority for the community is not CBDCs… the top urgent priority is to improve cross-border payments. In particular, for low-income and developing economies,” Coeure said.